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EXHIBIT E The goal of pension reform is to provide current and future employees with an appropriate pension upon retirement after a career in public service. The benefit level should be set to be fair and adequate, but fiscally sustainable for employers and taxpayers. Any proposal for such a regional pension standard must be based on sound actuarial work. Many financial planners and actuaries suggest that a replacement of 65% to 75% of salary is needed to provide a reasonable retirement income. Financial Planners take into account lower expenses in retirement and public workers saving for their own retirement; e.g. contribution to a 457 Plan rather than relying on Ca1PERS for a 100% replacement of pre- retirement income. While we recognize that the defined benefit plan has worked for decades and should be retained at some level, it is clear that defined benefit pensions are increasingly rare in the private sector. The great majority of private employers offer "defined contribution" plans where the employer contribution is a fixed amount and the benefits are based on contributions and investment earnings. These plans put the risk largely on the employee to amass and manage assets to ensure adequate income after retirement. Such 457 and 401(k) plans, and the like, have not performed well in recent years due to turmoil in the markets. Yet, there is a growing sentiment amongst the public and opinion leaders that State and local government workers should be forced to defined contribution plans. We believe this would be a mistake, for the following reasons: Defined benefit plans have proven to be more efficient than defined contribution plans for delivering pension benefits. Defined benefit plan investments generally earn far more than defined contribution plans, because they are professionally managed. Defined benefit plans offer lower fees and cover disability retirements and death benefits that are not included in defined contribution plans. Further, defined benefit plans offer a protection for inflation and manage longevity risk better than defined contribution plans by pooling larger numbers of people. Moving from a defined benefit plan to a defined contribution plan entails large start-up costs and forces changes in asset allocations that will produce lower investment results in the defined benefit plan that remains for existing employees. In other words, a forced conversion to a defined contribution plan would cost the taxpayers more for many years. However, defined benefit plans have become more expensive in recent years. In the late 1990s, when Ca1PERS was earning extraordinary returns on its portfolio, the California Legislature enacted significant benefit enhancements for public employees in the Ca1PERS systems that were optional for participating local governments. Market conditions at that time led to "super funding" of local government pensions causing management and labor to seek increased benefits to stay competitive. It is now common for public safety officers to retire close to age 50 with almost a full pre- retirement salary under the 3% at 50 Plan. These increased benefits have proven to be unsustainable and need to be rolled back to more appropriate pre -1999 levels. The costs for these defined benefit plans vary based on two factors: the benefits paid to retirees, and returns earned by investments. The pension funds are not immune to stock market declines, and CaIPERS has suffered staggering losses in its portfolio since mid 2008. While the market is showing some resiliency, member agencies will be called upon to pay significantly increased contributions over the next 30 years to fund pensions for current employees and make up huge losses. Because of the global recession, local revenues are significantly depressed. The two major city revenue sources, property taxes and sales taxes are not expected to recover to their previous levels for some time — perhaps years. The Ca1PERS policy adopted June 16, 2009, spreads the deep losses 2